Photo (cc) by 401(K) 2012
I’ve never had thousands of dollars lying around to invest. But a few years ago, I found a way to invest for much less. In fact, I only invested $100 the first month. Every month since then, I’ve invested another $50 and slowly built my portfolio up over time.
I used an online trading company that allowed me to buy partial stocks in small amounts. Sure, it took almost six months to buy one share of Google stock, but I’ve been able to build up a few shares in several companies over the last few months – and I did it without ever having to put down thousands of dollars at once.
Online trading is one way to invest when you don’t have much money. In the video below, Money Talks News founder Stacy Johnson gives you tips on online trading and three other ways you can invest with as little as $200. Check it out and then read on for some more cheap investment options…
Let’s look at four different investment opportunities you can harness without much money…
1. Mutual funds
Mutual funds are a group of stocks, bonds, or a mixture of both bundled together. You (and a whole bunch of other people) pool your resources, hire a company to manage the portfolio and keep track of the paperwork, and you get a slice of the portfolio and hopefully, a portion of the profits.
Many mutual funds require a couple thousand up front before you can invest, but not all. There are mutual funds that allow you to start with as little as $50, providing you agree to invest a like amount at regular intervals, normally monthly, in a regular investment plan. Morningstar’s Mutual Fund Finder is one way to find low-entry mutual funds. Once you register (it’s free), sort by cost and purchase to see what’s available. One word of caution: Morningstar lists both open and closed funds, so you’ll see some mutual funds that are closed to new investors, thus not taking new money.
2. Exchange-traded funds
Exchange-traded funds – or ETFs – are another type of investment fund. ETFs are like mutual funds, but unlike traditional mutual funds, these are bought and sold throughout the day on exchanges, just like stocks. When you invest in an ETF, you’re investing essentially in a mutual fund that trades like any other stock. You can invest in ETFs by buying as little as one share – and some brokerages don’t charge a commission on the deal. Fidelity Investments, Vanguard, TD Ameritrade, and St. Louis-based Scottrade all offer no-commission ETF trades, but before investing, read this article by The Wall Street Journal, and this one by The ETF Bully, because some no-commission deals come with other fees that in some cases cost more than traditional commissions.
3. Direct investing
Another option for investing is to buy stocks directly from the company. Many companies – like Ford, General Mills, and Verizon – have a direct investment option. While some companies have minimum requirements and fees, others don’t, and you can invest with only one or two shares.
Check out Mystockdirect.com for a list of links to direct investment opportunities from dozens of companies. It’s a good directory, but it’s only a starting point. Once you go through the list, check out company websites to see if they offer direct investments.
4. Buy through online brokerages
When you buy stocks through a traditional brokerage – online or off – you pay a commission fee on each trade – $10 to $40 a pop, according to Kiplinger. If you’re starting with $200, those fees will eat a huge chunk of your investment. So if you’re starting small, skip the brokerage firms and buy stocks yourself directly online – otherwise the commission costs are simply too large as a percentage of the investment.
On the other hand, there are companies that allow you to invest small amounts with even smaller fees. For example, I’ve used ING’s Sharebuilder for the past eight years. I only invest a small amount each month ($50). It costs $4.00 for automatic investments and $9.95 for trades, and there are no monthly fees on the basic plan.
Sharebuilder is one option, but you have a few others. Check out:
- Zecco – $4.95 per trade with no investment minimums
- FOLIOfn – $29 monthly or $290 a year with no investment minimums
- BuyAndHold.com – $6.99 per month with two free trades and no investment minimums
Before you jump in, check out some of our best investment advice. In Ask Stacy: How Do I Get Started Investing? Stacy explains how to start an investment portfolio. In 5 Tips for Young Investors, we tell you five things you must do before you start investing. And in 3 Steps to a Perfect Portfolio we lay out the basics and show you how to build your own investment portfolio.